In the wake of last week’s Supreme Court ruling on the Affordable Care Act, a new survey from HR consulting company Towers Watson shows that the cost of providing employee health coverage is rising even in countries untouched by Obamacare.
The cost of employee healthcare benefits continues to rise around the world, according to the Towers Watson survey of 237 leading medical insurers in 48 countries. The insurers cited an average increase in medical costs of 9.8% in 2011, down from a 10.2% rise in 2009, and predicted such costs will increase 9.6% this year. A separate Towers Watson survey with greater domestic focus put the U.S. trend rate of medical cost increases at 8% in 2011 and predicted an 7.4% rise this year.
Insurers list the top three causes of cost increases as new medical technology, over-prescription of care by practitioners and the fact that providers are becoming more profit-driven.
Outside the U.S., companies traditionally relied on public programs to provide most of their employees’ coverage, but much of that burden is being shifted to employers as countries scale back on public health services and employee demand for healthcare rises.
“The biggest worry [for companies] used to be pensions,” says Francis Coleman, Towers Watson’s director of international consulting. While pension costs still have a large impact on employers, healthcare increases pose a greater problem because companies often don’t expect or manage them, Coleman says. “They weren’t expecting to be the provider. When you look at double-digit cost trends, this is one of the biggest challenges out there for a multinational organization.”
Rates varied across different countries and regions: Costs in the U.K. continue to grow, although Europe as a whole has the lowest trend rate. Rates in the Middle East and Africa are fairly stable, but rates in Latin America and Asia Pacific are increasing.
In the BRIC countries, where multinationals have been outsourcing work because manufacturing there typically has been cheaper, the rate of health cost increases tended to be higher than in other regions, with insurers citing average 2011 increases of12% in Brazil, 12.17% in Russia and 13.25% in India.
“I think that’s an issue for employers trying to compete for talent,” Coleman notes. “It impacts your bottom line.”
Insurers expect employers’ health costs to continue rising in the next five years, though perhaps at a slower rate than before. Coleman predicts that for the foreseeable future, the annual increase will hover around the 10% mark.
As costs continue to grow at that double-digit rate, employers need to pay more attention. “This is something employers have not had on their radar in the past,” Coleman says. “They weren’t expecting to spend more and more of their budget on healthcare.”